Cancelling My DRIP

As mentioned in my Outlook for November 2014 post, I have been contemplating cancelling my DRIP. There are advantages and disadvantages to owning a DRIP program and I have discussed the details in the post To DRIP or Not To DRIP. But I have come to the conclusion that the benefits do not outweigh the drawbacks anymore, hence the move.

Cancelling My DRIP

For the last couple of years, I have owned a DRIP plan for investing in Bank of Nova Scotia (BNS). While the benefits existed when I started the DRIP program, the biggest pull for me was the discount rate. BNS was offering a 2% discount for the dividend reinvestment, which was cancelled in March 2014. Considering that I still have plenty of room in my tax sheltered accounts to take advantage of and avoid paying the tax man, I have decided to move my BNS shares over to my discount broker and take a tax shelter. All the rest of my holdings are already in tax-sheltered accounts and once the BNS DRIP is moved, I will not be paying a single penny in withholding dividend taxes (or capital gains taxes).

Bank of Nova Scotia (BNS) is still a great long term investment and is currently 15% undervalued to fair price. Read my stock analysis here.

If you are unfamiliar with DRIPs, the website DRIP Primer is one of the best resources available.

19 thoughts on “Cancelling My DRIP

    • Its the only DRIP I owned and now I am terminating it. The processing times are also very annoying. Everything takes days and weeks to occur. It was a good learning experience and a good way to build up a position and DCA, but its time to close that and move on.

      Best wishes
      R2R

  1. Sorry they stopped that sweet discount, R2R. Your move makes a lot of sense! I really want to own BNS at some point too. I’m excited to see where you’ll throw that money now 🙂 I’m about to stop the DRIP on most of the holdings in my taxable accounts as well. I won’t have as much cash flow to play with as you, but with consistent investments it should work out just fine. Thanks for sharing!

    Best,
    Ryan

    • Hey Ryan,
      Yeah it was a bummer when they announced that they were getting rid of the discount. BNS is a great long term investment – and its the most international Canadian bank..so, from a diversification perspective, its great to own.
      I will be using those funds to buy and re-initiate a position in BNS. I still want to stay invested in the company.

      cheers
      R2R

  2. R2R,
    I prefer DRIP on all my investments as I like them on auto pilot, its easier for me and I am not as experienced investor yet as most of the dividend growth investors that I follow. Maybe a few more years I will switch to selective reinvensment.

    • It is a good way to start off. And definitely takes out a lot of emotions from the decision process…which s great for most investors – even experienced ones. I was just tired of the long wait times in processing and lack of tax shelter.

      Best wishes
      R2R

  3. Don’t you have to pay taxes when transferring from regular account to a tax sheltered account? Basically you have to treat it as if you have sold the stock.

    I’m DRIPing shares in both regular and tax sheltered accounts.

    • I do, Tawcan. I figured I’d rather take the hit now instead of years later when the tax hit will be bigger and worse. I have decided to move the funds over to a TFSA account instead – where it’ll grow tax free.

      Best wishes

  4. I believe it was a good move. I only use the DRIP in my Scottrade account and never used a company’s DRIP, so I cannot judge the benefits over drawbacks. Other than that I do not use reinvestment program on any stock. I like to accumulate dividends and then buy a stock I want which may not necessarily be the same stock which generated the dividend.

    Also isn’t reinvested dividend somewhat tax deductible by lowering your cost basis?

    • Thanks for stopping by, Martin. Letting the cash accumulate and reinvest in other stocks is what Ive been doing with my other investments. I will be doing that with my BNS DRIP as well starting now.
      The Canadian tax system looks at dividends from Canadian companies more favorably. But the alternative that I choose is to move it to a TFSA account (something akin to IRA in the US, I believe), where I will not be paying anything in taxes. So, its a toss up between slightly lower taxes (DRIP) vs. No taxes whatsoever (TFSA).

      R2R

  5. I understand, but I like to hold some investments in taxable account in case I will be able to retire early. IRA won’t allow me to withdraw early (well, contributions only can be withdrawn early), so I like to have a taxable account to abridge the gap.

    • Oh ok. I guess the TFSA is not exactly like IRA then. The TFSA is like any savings account (stands for Tax Free Savings Account), and we can withdraw funds from the account anytime we need. The only rule that applies is that the contribution is limited to $5500 per year. If we withdraw any funds, we have to wait until the following year to increase the contribution room by that amount (+5500 for the new year).

Leave a Reply

Your email address will not be published. Required fields are marked *